Eleven Steps to Prevent Materials Theft
When Trish Williams came on board full-time at her husband’s shop, Micro Import Service in Tucson, Ariz., in 2010, she says she immediately noticed something was off.
“At that time, the inventory loss was approximately $20,000,” she says. “I’m thinking, ‘This is a small shop.’ At that time, we only had six employees.”
As she began to look into the finances more, she noted a huge disparity between the parts purchased and what was actually billed out. It was a difficult realization, she says, but one she eventually had to come to: It was the result of employee theft.
“My husband trusted them,” she says. “I hate to think that of anyone, but we don’t sell this to the customer so the only other people who have access are our employees.”
There are many shop owners like Williams, who trust their staff and have no stopgaps in place to prevent theft from happening and no methods for keeping tabs on employees.
Putting procedures in place to protect your shop against theft isn’t about policing staff or creating a feeling of distrust. Instead, “it’s about keeping honest people honest,” Williams says.
Since then, Williams has worked to put in place a number of policies and procedures to help protect her shop and its now 10 employees against future employee theft. Not only has it created a better atmosphere in the shop, the inventory loss is down considerably and hasn’t become a problem again.
Williams and industry veteran and speaker Rissy Sutherland, former COO of Honest-1 Auto Care, break down how to protect your shop against theft.
1.) Identify Potential Theft. The first step to protecting your shop against theft is to monitor finances and the areas where a potential theft could occur. Sutherland says to look at your balance sheet every week or month and specifically look at the inventory under assets, match sales to bank deposits on reports and take a look at your parts gross profit. If any of those are out of line, they could be a sign of theft.
Sutherland also recommends paying attention to large numbers of voided tickets and invoices on statements from parts vendors that don’t have purchase order numbers or don’t match up.
That’s where Williams identified the loss occurring in her shop.
“When my husband was telling me the difference between the parts purchased and what’s actually billed out is huge, it’s obvious,” she says. “Parts are coming up missing.”
2.) Put policies in place regarding theft. Update your employee handbook to specifically mention employee theft. Williams says she explicitly stated that it was immediate grounds for dismissal. Besides what happens if theft is caught, create policies surrounding what happens when an employee is aware of theft but does not report it, how to report, how and when inventory audits occur, and policies on time, materials, oil, services and parts.
Williams also created a policy that does not allow any side jobs or employee car jobs. All cars must be checked in, otherwise you could end up with parts that you can’t account for and the liability of those jobs.
3.) Count the number of cars in the parking lot. The number of cars in the lot should be the number of repair orders or work in progress that you have. Always check the number of invoices on hold, unassigned work orders, in-progress work orders, completed work orders, work on hold, and if there are a large number of deleted tickets.
4.) Verify your cash drawer. Sutherland says if you have a set $100 or $150, for example, a quick count should show you if you are short or over.
5.) Install a camera system. Williams recently added two cameras to the front office and six in the shop. While this may not prevent theft, it could deter individuals further.
“This one specifically helps us with our insurance company,” she says. “If for some reason we did have an employee theft and we reported it, the insurance company is going to make sure we have everything in place. If we don’t, they won’t accept the claim.”
6.) Create rules for check-signing authority. As the owner, Sutherland says you should have check-signing authority or require double signatures for checks over certain dollar amounts.
7.) Limit company credit cards. Williams says that many employees had company credit cards for use with the shuttle, filling up gas or running out to buy parts. She implemented a policy that every receipt has to have an explanation of the purchase, which then goes to the manager first and then the owners so it can be reconciled every month.
8.) Don’t hand out keys to everyone. Williams says the biggest way she reduced inventory loss in the shop was taking away nearly all of the keys.
“Everybody had keys to the shop and alarm codes to get in,” she says. “They could come in 24 hours a day, seven days a week if they wanted to. They’d be in on the weekends doing oil changes on their cars.”
Now, the manager, one technician and one service advisor have keys to open up in the mornings. Williams also changed the alarm codes and set the alarm to automatically open at 7 a.m. and arm at 7 p.m., Monday through Friday.
“I also receive a message when the alarm goes on or off,” she says. “People can get in here Monday through Friday, seven to seven, and those are our hours. That’s huge.”
9.) Implement stricter parts house procedures. Williams completely overhauled the parts delivery procedure to ensure that everything was accounted for. Before, anyone could sign for parts in the shop and she says there was little organization about where they ended up. Now when parts are delivered, they immediately go through the parts room and are signed for by one of two authorized people. Furthermore, every part that is delivered should have a customer purchase order attached on the invoice. If it does not, the delivery should go back to the service advisor for proper documentation.
“Documentation is so important. It’s the only way you can keep track of where the inventory is,” she says. “That was not something that we were holding the service advisors accountable for. How would you track parts if it didn’t have a customer purchase order on it?”
10.) Perform audits. Williams now sets parts levels for inventory and diligently complete audits for inventory, deposits, returns and credits for parts, core returns, fluids, tools and cash on hand.
11.) Incorporate loss as part of meetings. Williams says she wants her employees to embrace change, so she has made inventory loss monitoring part of the conversation at the shop’s monthly meetings.
“One of the goals for this year that I’m setting is that I would love to start profit sharing with our employees,” she says. “I want to show them that the inventory is a loss. If they can help with this, this is going to benefit them because our profit will go up. They will reap the benefits.”
Effects of Planning
Williams says that in the five years since she implemented the theft-preventing measures, the loss has been reduced to nearly zero and all of the measures have been successful.
“It has gotten so much better because employees can see that we’re really diligently tracking,” she says.
While a couple employees left as a result of the changes, she says that any change in personnel has been a positive change.
“It protects [the employees], too, because it’s so easy if you have things lying around, others may think you might not miss something,” she says. “They have thousands of dollars of tools that are their own in there.”